When things start to go wrong, all you hear are the appeals for the “free market” as if that will solve the problem. When things are too late to save, the calls are for government intervention because the free market is kicking them into a bloody pulp.
This isn’t the first time this has happened, but the “powers that be” go into denial every time it starts to happen again. It’s as if they can’t see the pattern.
]]>It was an online interview (or ‘chat’ as they called it) on the US ABC blog in May 2000. It’s very interesting reading now, and should have been mandatory reading. 🙂
Blind Faith? Economist Warns of Speculative Bubble in Stock Market
Here’s a partial sample:
SPM from scr.siemens.com at 3:16pm ET
What are your reasons for thinking that the current expansion is fundamentally unhealthy? Mightn’t we be seeing the economic expression of a technological revolution instead of simply wild speculation?Robert J. Shiller at 3:17pm ET
I think that the answer is both. We are undergoing both a technological revolution and wild speculation. And these things do historically tend to occur together. It’s very hard to prove that the market reaction is an overreaction, but in historical perspective, it appears that such overreactions are commonplace.Matt at 3:18pm ET
At current P/E ratios, true stock yields without growth are minuscule. Why aren’t people migrating to investments, like bonds and real estate, with more attractive yields?Robert J. Shiller at 3:19pm ET
Well, a common phrase when we talk to investors is that the stock market is “the only game in town.” There is a lot of attention given to the upside potential for stocks and a feeling that there is little downside in the long run.Bobe at 3:19pm ET
There are lots of books like yours published in the past 20 years or so predicting the end of the American economy. What is different about your book and your predictions from all the others?Robert J. Shiller at 3:21pm ET
I’m not predicting the end of the American economy. It’s a question of price: when is the price right? One reason why the markets tend to overreact is that it appears unpatriotic to say that the market’s gotten too high. We have a great teacher for the economy, but not quite as great as the market seems to think.Robert from census.gov at 3:21pm ET
In the latest edition of “A Random Walk Down Wall Street”, Burton Malkiel predicts the U.S. stock market will grow about 7% a year for the next couple of decades. What do you think is the likelihood of that, and what is your position about the correctness of the random walk theory of stock market price changes?Robert J. Shiller at 3:22pm ET
I think it’s unlikely that the stock market will grow as much as Burton Malkiel predicts. Malkiel is neglecting to consider the overpricing of the market. Once when asked to predict the Dow in the year 2020, I said, and I still stand by it, that a reasonable forecast is 10,000. That kind of level accords with historical experience after major overpricings.
So… where has the ABC been the past few years? Not to mention the other MSM’s. 😉
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